The California State Senate and State Assembly passed Assembly Bill (AB) 3129 on August 31, 2024, immediately prior to the end of the state’s legislative session. The bill now heads to the desk of Governor Gavin Newsom as a final step toward enactment. If signed by Governor Newsom, AB 3129 would take effect January 1, 2025, and would materially impact certain private equity and hedge fund acquisitions of health facilities, provider organizations, and provider groups in California.

We summarized earlier versions of AB 3129 in our On the Subject articles “California AB 3129 Targets the Health Facility Transactions Approval Process” and “Pending California Law Undermines Growth of Digital Health Companies and Patient Access to Virtual Care.” As described in those articles, AB 3129 targets healthcare consolidations involving private equity groups and hedge funds, requiring them to obtain consent from the California attorney general prior to acquiring or affiliating with certain healthcare facilities or provider groups. AB 3129 reiterates California’s corporate practice doctrine by expressly prohibiting private equity groups, hedge funds, and their affiliates from entering into agreements with physician, psychiatric, or dental practices that would enable these lay entities to interfere with the professional judgment of physicians, psychiatrists, or dentists. If AB 3129 is signed into law, private-equity-backed management services organizations should review their corporate structures and the agreements they have in place with physician, psychiatric, or dental practices to ensure they remain compliant with all applicable law.

Since its introduction, AB 3129 has undergone several material amendments, such as:

• Excluding transactions with for-profit hospitals and dermatology practices from the California attorney general review requirement;
• Carving out certain transactions involving health plans, insurance companies, counties, healthcare districts, and the University of California from the California attorney general review requirement;
• Establishing a 15% standard for determining whether a transaction involves a “material amount of the assets or operations” and increasing certain other materiality thresholds;
• Removing the prohibition on management services agreements between physician, psychiatric, or dental practices and private equity groups or hedge funds; and
• Establishing an alternative evidentiary hearing process for private equity funds and hedge funds on the question of whether a transaction subject to California attorney general review presents a substantial likelihood of anticompetitive effects or creates a significant effect on the access or availability of healthcare services.

The last day that Governor Newsom may sign or veto bills is September 30, 2024.

THE McDERMOTT DIFFERENCE

McDermott is actively monitoring the status of AB 3129 and will provide additional future updates.